FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1995
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-6112
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NORTEK, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 05-0314991
- -----------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Kennedy Plaza, Providence, RI 02903-2360
- -----------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(401) 751-1600
- -----------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -----------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last year)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---------- -----------
The number of shares of Common Stock outstanding as of May
5, 1995 was 12,027,325. The number of shares of Special
Common Stock outstanding as of May 5, 1995 was 522,924.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
April 1, Dec. 31,
1995 1994
---- ----
(Unaudited)
ASSETS
Current Assets:
Unrestricted--
Cash and investments at cost which
approximates market $ 55,255 $ 77,106
Marketable securities available for
sale 27,035 27,974
Restricted--
Cash, investments and marketable
securities at cost which
approximates market 9,337 9,337
Accounts receivable, less allowances
of $4,201 and $4,030 105,265 91,687
Inventories:
Raw materials 32,147 32,660
Work in process 10,995 9,497
Finished goods 56,916 53,191
------- -------
100,058 95,348
------- -------
Prepaid expenses and other current
assets 6,506 7,542
U. S. Federal prepaid income taxes 19,800 19,800
------- -------
Total Current Assets 323,256 328,794
------- -------
Property and Equipment, at cost:
Land 6,127 6,069
Buildings and improvements 55,524 55,639
Machinery and equipment 126,326 123,848
------- -------
187,977 185,556
Less--Accumulated depreciation 89,592 87,475
------- -------
Total Property and Equipment,
net 98,385 98,081
------- -------
Other Assets:
Goodwill, less accumulated amortiza-
tion of $22,067 and $21,459 72,281 72,682
Deferred debt expense 8,271 8,502
Other 10,775 11,158
------- -------
91,327 92,342
------- -------
$512,968 $519,217
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Continued)
(Dollar Amounts in Thousands)
April 1, Dec. 31,
1995 1994
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
Current Liabilities:
Notes payable, current maturities
of long-term debt and other short-
term obligations $ 4,573 $ 4,629
Accounts payable 55,707 52,697
Accrued expenses and taxes, net 84,904 98,009
------- -------
Total Current Liabilities 145,184 155,335
------- -------
Other Liabilities:
Deferred income taxes 18,193 18,232
Other 7,818 7,909
------- -------
26,011 26,141
------- -------
Notes, Mortgage Notes and
Debentures Payable 219,927 219,951
------- -------
Stockholders' Investment:
Preference stock, $1 par value;
authorized 7,000,000 shares,
none issued --- ---
Common Stock, $1 par value;
authorized 40,000,000 shares,
15,820,564 shares and 15,814,246
shares issued 15,820 15,814
Special Common Stock, $1 par value;
authorized 5,000,000 shares,
796,379 shares and 802,097
shares issued 796 802
Additional paid-in capital 134,627 134,627
Retained earnings 3,266 766
Cumulative translation, pension and
other adjustments (4,612) (6,168)
Less - treasury common stock at
cost, 3,795,106 shares and
3,795,028 shares (26,371) (26,371)
- treasury special common stock
at cost, 271,582 shares and
271,574 shares (1,680) (1,680)
------- -------
Total Stockholders' Investment 121,846 117,790
------- -------
$512,968 $519,217
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
For The
Three Months Ended
------------------
April 1, April 2,
1995 1994
---- ----
(Unaudited)
Net Sales $184,809 $169,020
------ -------
Costs and Expenses:
Cost of products sold 135,440 119,302
Selling, general and
administrative expense 40,336 41,444
------- -------
175,776 160,746
------- -------
Operating earnings 9,033 8,274
Interest expense (5,910) (7,875)
Interest income 1,577 1,201
------- -------
Earnings before provision for
income taxes 4,700 1,600
Provision for income taxes 2,200 900
------- -------
Earnings before extraordinary gain 2,500 700
Extraordinary gain from debt
retirements --- 400
------- -------
Earnings before the cumulative
effect of an accounting change 2,500 1,100
Cumulative effect of an accounting
change --- 400
------- -------
Net Earnings $ 2,500 $ 1,500
======= =======
Net Earnings Per Share:
Earnings Before Extraordinary Gain--
Primary $ .20 $ .06
------- -------
Fully diluted $ .20 $ .06
------- -------
Extraordinary Gain--
Primary $ --- $ .03
------- -------
Fully diluted $ --- $ .03
------- -------
Cumulative Effect of an Accounting
Change--
Primary $ --- $ .03
------- -------
Fully diluted $ --- $ .03
------- -------
Net Earnings--
Primary $ .20 $ .12
====== =======
Fully diluted $ .20 $ .12
====== =======
Weighted Average Number of Shares:
Primary 12,720 12,685
======= =======
Fully diluted 12,720 13,400
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
For the
Three Months Ended
------------------
April 1, April 2,
1995 1994
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,500 $ 1,500
------ ------
Adjustments to reconcile net earnings
to cash:
Depreciation and amortization 4,873 5,052
Extraordinary gain from debt retirements --- (600)
Cumulative effect of an accounting
change --- (400)
Deferred federal income tax credit
from continuing operations (300) (500)
Deferred federal income tax provision
on extraordinary items --- 1,350
Changes in certain assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable, net (13,570) (11,856)
Prepaids and other current assets 1,008 (1,091)
Inventories (4,537) (7,449)
Accounts payable 3,010 6,976
Accrued expenses and taxes (11,207) (3,036)
Long-term assets, liabilities and
other, net 632 (4,134)
------ ------
Total adjustments to net earnings (20,091) (15,688)
------ -------
Net Cash Used in Operating
Activities (17,591) (14,188)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,389) (3,763)
Purchase of investments and marketable
securities (10,085) (5,032)
Proceeds from sale of investments and
marketable securities 12,067 ---
Proceeds (payments) relating to
businesses sold or discontinued, net (1,745) 20,280
Other, net --- (943)
------ ------
Net Cash Provided by (Used in)
Investing Activities (4,152) 10,542
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Notes --- 209,195
Purchase and redemption of debentures
and notes payable --- (176,611)
Payment of borrowings (108) (5,458)
Other net --- (91)
------- ------
Net Cash Provided by (Used in)
Financing Activities (108) 27,035
------- ------
Net increase (decrease) in unrestricted
cash and investments (21,851) 23,389
Unrestricted cash and investments at
the beginning of the period 77,106 56,606
------ ------
Unrestricted cash and investments at the
end of the period $55,255 $79,995
====== ======
Interest paid $11,162 $ 6,997
====== ======
Income taxes paid, net $ 1,312 $ 2,753
====== ======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nortek, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Investment
For the Three Months Ended April 1, 1995 and April 2, 1994
(Dollar Amounts in Thousands)
Cumulative
Translation,
Addi- Retained Pension
Special tional Earnings and Other
Common Common Paid-in (Accumulat- Adjust-Treasury
Stock Stock Capital ed Deficit) ments Stock
----- ----- ------- ----------- ------ -----
(Unaudited)
Balance, December 31,
1993 $15,759 $849 $134,627 $(17,034) $(2,143) $(28,051)
19,156 shares of
special common stock
converted into
19,156 shares of
common stock 19 (19) --- --- --- ---
Translation
adjustment --- --- --- --- (652) ---
Cumulative effect of
an accounting
change (see Note D) --- --- --- --- (400) ---
Unrealized decline in
marketable securities --- --- --- --- (1,515)
Net earnings --- --- --- 1,500 --- ---
------ --- ------- ------ ------ ------
Balance, April 2, 1994 $15,778 $830 $134,627 $(15,534) $(4,710) $(28,051)
====== === ======= ====== ====== =======
Balance, December 31,
1994 $15,814 $802 $134,627 $ 766 $(6,168) $(28,051)
5,718 shares of
special common stock
converted into
5,718 shares of
common stock 6 (6) --- --- --- ---
Translation
adjustment --- --- --- --- 503 ---
Unrealized appreciation
of marketable securities --- --- --- --- 1,053 ---
Net earnings --- --- --- 2,500 --- ---
------ --- ------- ------- ------ ------
Balance, April 1, 1995 $15,820 $796 $134,627 $ 3,266 $(4,612) $(28,051)
======= ====== ======== ======= ======= =========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995 AND APRIL 2, 1994
(A) The unaudited condensed consolidated financial statements
presented ("Unaudited Financial Statements") have been prepared
by Nortek, Inc. and subsidiaries (the "Company") without audit
and, in the opinion of management, reflect all adjustments of a
normal recurring nature necessary for a fair statement of the
interim periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been omitted, although, the Company believes that the disclosures
included are adequate to make the information presented not
misleading. Certain amounts in the Unaudited Financial
Statements for the prior periods have been reclassified to
conform to the presentation at April 1, 1995. It is suggested
that these Unaudited Financial Statements be read in conjunction
with the financial statements and the notes included in the
Company's latest Annual Report on Form 10-K.
(B) On January 14, 1994, the Company redeemed $22,600,000 principal
amount of its 11 1/2% Senior Subordinated Debentures due May
1994, which were called for redemption in December 1993. In
February 1994, the Company sold in a public offering $218,500,000
of its 9 7/8% Senior Subordinated Notes due 2004 ("9 7/8% Notes")
at a slight discount. On March 24, 1994, a portion of the net
proceeds from the sale of the 9 7/8% Notes was used to redeem
approximately $153,000,000 of certain of the Company's
outstanding principal amount of indebtedness, and to pay accrued
interest. Interest expense, net of interest income, in the first
quarter of 1994 was approximately $1,300,000 greater than it
would have been had the debt redemption occurred on the same day
as the financing. Net sales, earnings from continuing operations
and fully diluted earnings per share for the three months ended
April 2, 1994, as adjusted for the pro forma effect of the debt
financing and the debt redemptions was $169,020,000, $1,600,000
and $.13, respectively.
In computing the pro forma earnings from continuing operations,
interest expense on the indebtedness redeemed during the period
that such indebtedness was outstanding was excluded from
operating results at an average interest rate of approximately
13.5% (including amortization of debt discounts and deferred debt
expense), net of the tax effect. Interest expense was included
on the 9 7/8% Notes at a rate of approximately 9 7/8%, plus
amortization of deferred debt expense and debt discount, net of
the tax effect. Investment income was assumed earned on the
remaining cash proceeds from the debt financing at a rate of
3.5%.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995 AND APRIL 2, 1994
(Continued)
On March 31, 1994, the Company sold all the capital stock of its
Dixieline Lumber Company subsidiary ("Dixieline") for
approximately $18,800,000 in cash and $6,000,000 in preferred
stock of the purchaser. In the third quarter of 1993, the
Company provided a valuation reserve of approximately $20,300,000
($1.19 per share, net of tax) to reduce the Company's net
investment in Dixieline to estimated net realizable value. No
additional loss in 1994 was necessary in connection with the
sale.
(C) During the first quarter of 1994, the Company purchased, at a
discount, in the open market approximately $4,000,000 principal
amount of its 7 1/2% convertible sinking fund debentures due 2006
("7 1/2% Convertible Debentures"). This transaction resulted in
an extraordinary gain of approximately $400,000, net of income
taxes of approximately $200,000 ($.03 per share) in the first
quarter of 1994.
(D) On January 1, 1994, the Company adopted the accounting
requirements of Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", and recorded as income the accumulated
unrealized marketable security reserve recorded at December 31,
1993 of approximately $400,000 ($.03 per share) as the cumulative
effect of an accounting change. Under the new accounting method,
the Company records unrealized gains or losses on such investment
securities as adjustments to stockholders' investment.
Previously, such gains or losses were recorded in the Company's
statement of operations. At April 1, 1995, the accumulated
reduction in the Company's stockholders' investment under the new
accounting method for unrealized losses was approximately
$2,326,000 as compared to approximately $3,379,000 at December
31, 1994.
There were no material realized gains or losses recorded in the
first quarter of 1995 or 1994. At April 1, 1995, there were no
unrealized gains on the Company's marketable securities.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995 AND APRIL 2, 1994
(Continued)
(E) The tax effect of temporary differences which gave rise to
significant portions of deferred income tax assets and
liabilities as of April 1, 1995 and December 31, 1994 is as
follows:
April 1, Dec. 31,
U. S. Federal Prepaid (Deferred) 1995 1994
---- ----
(Amounts in Thousands)
Income Tax Assets Arising From:
Accounts receivable $ 1,457 $ 1,399
Inventory (226) (468)
Insurance reserves 7,977 7,688
Other reserves, liabilities
and assets, net 10,592 11,181
------ ------
$19,800 $19,800
====== ======
Deferred (Prepaid) Income Tax
Liabilities Arising From:
Property and equipment, net $12,485 $12,406
Prepaid pension assets 1,185 1,230
Insurance reserves (643) (643)
Other reserves, liabilities and
assets, net 2,277 2,476
Capital loss carryforward (6,828) (6,217)
Unrealized loss on business sold (478) (604)
Other tax assets (2,726) (3,642)
Valuation allowances 12,921 13,226
------ ------
$18,193 $18,232
====== ======
At April 1, 1995, the Company has a capital loss carryforward of
approximately $17,700,000, which expires in the year 1997. The
Company has provided a valuation allowance equal to the tax
effect of capital loss carryforwards and certain other tax
assets, since realization of these tax assets cannot be
reasonably assured. At April 1, 1995, the Company has
approximately $3,400,000 of net U. S. Federal prepaid income tax
assets which are expected to be realized through future operating
earnings.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995 AND APRIL 2, 1994
(Continued)
The table below reconciles the federal statutory income tax rate
to the effective tax rate from continuing operations of
approximately 46.8% and 56.3% in 1995 and 1994, respectively.
Three Months Ended
------------------
April 1, April 2,
1995 1994
---- ----
(Amounts in Thousands)
Income tax provision from continuing
operations at the Federal statutory
rate $1,645 $ 560
Net Change from Statutory Rate:
Change in valuation reserve, net 64 (77)
State taxes, net of federal tax effect 195 163
Amortization not deductible for tax
purposes 184 184
Other nondeductible items (2) 74
Tax effect on foreign income 81 86
Other, net 33 (90)
----- ----
$2,200 $ 900
===== ====
(F) Net earnings per share amounts have been computed using the
weighted average number of common and common equivalent shares
outstanding during each year. Earnings per share calculations
for the first quarter of 1994 do not include the effect of
convertible debentures (and the reduction in related interest
expense) because the assumed conversion of debentures is anti-
dilutive.
(G) At April 1, 1995, approximately $30,000,000 was available for the
payment of cash dividends or stock payments under the terms of
the Company's Indenture governing the 9 7/8% Notes.
(H) The following table summarizes the unaudited activity of
businesses sold or discontinued included in the accompanying
unaudited condensed consolidated statement of cash flows:
Three Months Ended
------------------
April 1, April 2,
1995 1994
---- ----
(Amounts in Thousands)
Fair value of assets sold $ --- $39,439
Non-cash proceeds received as part
of the proceeds --- (6,000)
Liabilities assumed by the purchaser --- (16,143)
Cash received (paid) relating to
businesses sold (1,745) 2,984
------ ------
Net cash proceeds (payments) relating
to businesses sold $(1,745) $20,280
====== ======
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995 AND APRIL 2, 1994
(Continued)
Significant unaudited non-cash financing and investing activities
excluded from the accompanying unaudited condensed consolidated
statement of cash flows include an increase of approximately
$1,053,000 in the first quarter ended April 1, 1995 and a decline of
approximately $1,515,000 in the first quarter of 1994 in the fair
market value of marketable securities available for sale.
Depreciation and amortization included in the Company's unaudited
condensed consolidated statement of cash flows for the three months
ended April 1, 1995 and April 2, 1994, includes approximately $250,000
and approximately $600,000 of amortization of deferred debt expense
and debt discount, respectively, which is recorded as interest expense
in the accompanying unaudited condensed consolidated statement of
operations.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 1, 1995
AND THE FIRST QUARTER ENDED APRIL 2, 1994
The Company is a diversified manufacturer of residential and
commercial building products, operating within three principal product
groups: the Residential Building Products Group; the Air Conditioning
and Heating Products Group; and the Plumbing Products Group. Through
these product groups, the Company manufactures and sells, primarily in
the United States and Canada, a wide variety of products for the
residential and commercial construction, manufactured housing, and the
do-it-yourself and professional remodeling and renovation markets.
Results of Operations
The tables below and on the next page set forth, for the periods
presented, (a) certain consolidated operating results, (b) the
percentage change in the amount and percentage of such results as
compared to the prior comparable period, (c) the percentage which such
results bears to net sales and (d) the change of such percentages as
compared to the prior comparable period. The results of operations
for the first quarter ended April 1, 1995 are not necessarily
indicative of the results of operations to be expected for any other
interim period or the full year.
First Quarter Ended Change in
-------------------
April 1, April 2, First Quarter 1995
------------------
1995 1994 $ %
---- ---- ----- ------
(Dollar amounts in millions)
Net sales $184.8 $169.0 15.8 9.3
Cost of products sold 135.5 119.3 (16.2) (13.6)
Selling, administrative and
other, net 40.3 41.4 1.1 2.7
Operating earnings 9.0 8.3 .7 8.4
Interest expense (5.9) (7.9) 2.0 25.3
Interest income 1.6 1.2 .4 33.3
Earnings before provision
for income taxes 4.7 1.6 3.1 193.7
Provision for income taxes 2.2 .9 (1.3) (144.4)
Earnings before extraordinary
gain 2.5 .7 1.8 257.1
Extraordinary gain from
debt retirements --- .4 (.4) (100.0)
Earnings before the cumulative
effect of an accounting change 2.5 1.1 1.4 127.3
Cumulative effect of an
accounting change --- .4 (.4) (100.0)
---- ---- ---- ------
Net earnings $ 2.5 $ 1.5 1.0 66.7
==== ==== ==== ======
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 1, 1995
AND THE FIRST QUARTER ENDED APRIL 2, 1994
(Continued)
Change in
Percentage of Net Sales Percentage
First Quarter Ended for the First
-------------------
April 1, April 2, Quarter 1995
1995 1994 as compared to 1994
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 73.3 70.6 (2.7)
Selling, administrative and
other, net 21.8 24.5 2.7
Operating earnings 4.9 4.9 ---
Interest expense (3.2) (4.6) 1.4
Interest income .9 .7 .2
Earnings before provision
for income taxes 2.6 1.0 1.6
Provision for income taxes 1.2 .5 (.7)
Earnings before extra-
ordinary gain 1.4 .5 .9
Extraordinary gain from debt
retirements --- .2 (.2)
Earnings before the
cumulative effect of an
accounting change 1.4 .7 .7
Cumulative effect of an
accounting change --- .2 (.2)
---- ---- ----
Net earnings 1.4 .9 .5
==== ==== ====
The following table presents the net sales for the Company's principal
product groups for the first quarter ended April 1, 1995 as compared
to the first quarter ended April 2, 1994 and the amount and the
percentage change of such results as compared to the prior comparable
period. The results of operations for the first quarter are not
necessarily indicative of the results of operations to be expected for
any other interim period or the full year.
First Quarter Ended
-------------------
April 1, April 2, Increase (Decrease)
1995 1994 $ %
---- ---- ----- -----
(000's omitted)
Net Sales:
Residential Building
Products $ 67,690 $ 63,950 3,740 5.8
Air Conditioning and
Heating Products 83,462 73,473 9,989 13.6
Plumbing Products 33,657 31,597 2,060 6.5
------- ------- ------ ----
Total $184,809 $169,020 15,789 9.3
======= ======= ====== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 1, 1995
AND THE FIRST QUARTER ENDED APRIL 2, 1994
(Continued)
Operating Results
- -----------------
Net sales increased approximately $15,800,000, or approximately 9.3%,
in the first quarter 1995 as compared to the first quarter of 1994
principally as a result of increased sales volume of residential air
conditioning and heating ("HVAC") products, increased shipments of new
and replacement HVAC products to manufactured housing customers, and
increased sales levels of commercial and industrial HVAC products. To
a lesser extent, increased sales levels in the Residential Building
Products Group and increased sales of vanities and related products by
the Plumbing Products Group were also a factor. These increases were
partially offset by lower sales volume and prices of vitreous china
products in the Plumbing Products Group.
Cost of products sold as a percentage of net sales increased from
approximately 70.6% in the first quarter of 1994 to approximately
73.3% in the first quarter of 1995 primarily as a result of higher
material costs in the Plumbing Products Group, residential and
manufactured housing HVAC products of the Air Conditioning and Heating
Products Group and (to a lesser extent) built-in ventilation products
of the Residential Building Products Group. Increased sales levels in
the Air Conditioning and Heating Products Group, which group has a
higher cost level than the total cost level of the Company, was also a
factor in the increase in the percentage.
Selling, general and administrative expense, as a percentage of net
sales decreased from approximately 24.5% in the first quarter of 1994
to approximately 21.8% in the first quarter of 1995 principally as a
result of increased HVAC product net sales without a proportionate
increase in expense and lower non-segment expense. To a lesser
extent, increased net sales and lower expense in the Plumbing Products
Group was also a factor.
Segment earnings were approximately $11,550,000 for the first quarter
of 1995, as compared to approximately $12,100,000 for the first
quarter of 1994. The decrease in segment earnings principally was due
to higher material costs as noted above, partially offset by increased
earnings from higher sales volume of HVAC products, without
proportionate increases in selling, general and administrative
expenses.
Operating earnings in the first quarter of 1995 increased
approximately $700,000, or approximately 8.4%, as compared to the
first quarter of 1994, primarily as a result of the factors discussed
above.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 1, 1995
AND THE FIRST QUARTER ENDED APRIL 2, 1994
(Continued)
Interest expense in the first quarter of 1995 decreased approximately
$2,000,000, or approximately 25.3%, as compared to the first quarter
of 1994. In February 1994, the Company sold in a public offering
$218,500,000 of its 9 7/8% Notes and used a portion of the proceeds to
redeem, on March 24, 1994 approximately $153,000,000 of certain of the
Company's outstanding indebtedness. Interest expense (net of interest
income) for the first quarter of 1994 was approximately $1,300,000
greater than it would have been had the debt redemption occurred on
the same day as the financing. The effect of the redemption of
certain other outstanding indebtedness in January 1994 was also a
factor. (See Note B of the Notes to Unaudited Condensed Consolidated
Financial Statements included elsewhere herein.)
Interest income in the first quarter of 1995 increased approximately
$400,000, or approximately 33.3%, as compared to the first quarter of
1994, principally due to higher yields earned on short-term
investments and marketable securities, partially offset by lower
average invested balances of short-term investments and marketable
securities.
The provision for income taxes was approximately $2,200,000 for the
first quarter of 1995, as compared to approximately $900,000 for the
first quarter of 1994. The income tax rates principally differed from
the United States Federal statutory rate of 35%, as a result of state
income tax provisions, the effect of foreign income tax on foreign
source income and nondeductible amortization expense (for tax
purposes) in both periods. (See Note E of the Notes to Unaudited
Financial Statements included elsewhere herein.)
The Company recorded an extraordinary gain of approximately $400,000
in the first quarter of 1994. The gain resulted from the purchase in
the open market of the Company's 7 1/2% Convertible Debentures in
March 1994. (See Note C of the Notes to Financial Statements included
elsewhere herein.)
The cumulative effect of an accounting change resulted in earnings of
approximately $400,000 in the first quarter of 1994 from the adoption
of SFAS No. 115. (See Notes D of the Notes to Unaudited Financial
Statements included elsewhere herein.)
Inflation has not had a material effect on the Company's results of
operations and financial condition until mid-1994, when the Company
experienced increases in certain costs and expenses including raw
material costs. In the first quarter of 1995, material costs as a
percentage of net sales increased by 2.9% as compared to the first
quarter of 1994. There can be no assurance that the Company will be
able to sufficiently increase its sales prices if these cost increases
persist.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 1, 1995
AND THE FIRST QUARTER ENDED APRIL 2, 1994
(Continued)
Liquidity and Capital Resources
The Company's primary sources of liquidity in 1995 and 1994 have been
funds provided by subsidiary operations, unrestricted short-term
investments and marketable securities and in 1994 included funds from
the sale of 9 7/8% Notes (See Note B of the Notes to the Unaudited
Condensed Consolidated Financial Statements included elsewhere herein)
and proceeds from a business sold. Unrestricted cash, investments and
marketable securities were approximately $82,290,000 at April 1, 1995
as compared to $105,080,000 at December 31, 1994. The Company's
Canadian subsidiary, Broan Limited, has a $20,100,000 Canadian
(approximately $14,400,000 U. S. at exchange rates prevailing at April
1, 1995) secured line of credit, of which approximately $14,800,000
Canadian (approximately $10,950,000 U. S. at exchange rates prevailing
at May 5, 1995), in the aggregate, is available to the Company (the
"Line of Credit") at May 5, 1995. Borrowings under the Line of Credit
are available for working capital and other general corporate
purposes. The Line of Credit contains covenants requiring Broan
Limited to maintain (i) a ratio of earnings before interest and taxes
to interest of at least 2 to 1, (ii) a working capital ratio of at
least 1.5 to 1 and (iii) a debt to equity ratio of no higher than 3 to
1. The Line of Credit also limits the annual amount of capital
expenditures which Broan Limited may make to $1,000,000 Canadian
(approximately $700,000 U. S. at exchange rates prevailing at April 1,
1995). Broan Limited pays a commitment fee of .25% per annum on the
unutilized portion of the Line of Credit payable monthly on a pro rata
basis, and the Line of Credit is subject to an annual review by the
lender in April of each year. As of May 5, 1995, there were no
outstanding borrowings under the Line of Credit.
The Company believes that cash flow from subsidiary operations,
unrestricted cash and marketable securities and borrowings under the
Line of Credit or under new credit facilities or arrangements which
may be entered into will provide sufficient liquidity to meet the
Company's working capital, capital expenditure, debt service and other
business needs through the next 12 months.
The Company's investment in marketable securities at April 1, 1995
consisted primarily of investments in United States Treasury
securities. (See Note D of Notes to Unaudited Condensed Consolidated
Financial Statements included elsewhere herein.) At April 1, 1995,
approximately $9,337,000 of the Company's cash and investments were
pledged as collateral with insurance companies and were classified as
restricted in current assets in the Company's accompanying unaudited
condensed consolidated balance sheet.
At April 1, 1995, approximately $30,000,000 was available for the
payment of cash dividends or stock payments under the terms of the
Company's indenture governing the 9 7/8% Notes.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 1, 1995
AND THE FIRST QUARTER ENDED APRIL 2, 1994
(Continued)
The Company's working capital and current ratio increased from
approximately $173,459,000 and approximately 2.1:1, respectively, at
December 31, 1994 to approximately $178,072,000 and approximately
2.2:1, respectively, at April 1, 1995, principally as a result of the
factors described below.
Accounts receivable increased approximately $13,578,000, or
approximately 14.8%, between December 31, 1994 and April 1, 1995,
while net sales increased approximately 4.2% in the first quarter of
1995 as compared to the fourth quarter of 1994. The increase in
accounts receivable is principally as a result of increased net sales
of new and replacement products from residential and manufactured
housing customers by the Air Conditioning and Heating Products Group.
The rate of change in accounts receivable in certain periods may be
different than the rate of change in sales in such periods principally
due to the timing of net sales. Significant net sales near the end of
any period generally result in significant amounts of accounts
receivable on the date of the balance sheet at the end of such period,
as was the situation on April 1, 1995 as compared to December 31,
1994. In recent periods, the Company has not experienced any
significant changes in credit terms, collection efforts, credit
utilization or delinquency.
Inventories increased approximately $4,710,000 or approximately 4.9%,
between December 31, 1994 and April 1, 1995.
Accounts payable increased approximately $3,010,000 or approximately
5.7% between December 31, 1994 and April 1, 1995.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 1, 1995
AND THE FIRST QUARTER ENDED APRIL 2, 1994
(Continued)
Unrestricted cash and investments decreased approximately $21,851,000 from
December 31, 1994 to April 1, 1995, principally as a result of cash
provided by (used in) the following:
Condensed
Consolidated
Cash Flows
----------
Operating Activities--
Cash flow from operations, net $ 7,073,000
Increase in accounts receivable, net (13,570,000)
Increase in inventories (4,537,000)
Increase in trade accounts payable 3,010,000
Change in accrued expenses, taxes, prepaids,
other assets, liabilities, and other, net (9,567,000)
Investing Activities--
Cash payment relating to a
business sold (1,745,000)
Purchase of marketable securities (10,085,000)
Proceeds from the sale of marketable
securities 12,067,000
Capital expenditures (4,389,000)
Financing Activities--
Payment of borrowings (108,000)
----------
$(21,851,000)
==========
The Company's debt-to-equity ratio decreased from approximately 1.9:1 at
December 31, 1994 to 1.8:1 at April 1, 1995, primarily as a result of the
effect of increased stockholders' investment as a result of net earnings
and changes in the cumulative translation and marketable securities
adjustments in the first quarter of 1995. (See Note D of the Notes to the
Unaudited Condensed Consolidated Financial Statements and the Company's
Unaudited Condensed Consolidated Statement of Stockholders' Investment
included elsewhere herein.)
At April 1, 1995, the Company has approximately $3,400,000 of net U. S.
Federal prepaid income tax assets which are expected to be realized through
future operating earnings. (See Note E of Notes to the Unaudited Condensed
Consolidated Financial Statements.)
The Company believes that its growth will be generated largely by internal
growth in each of its product groups, augmented by strategic acquisitions.
The Company regularly reviews potential acquisitions which would increase
or expand the market penetration of, or otherwise complement, its current
product lines. On April 28, 1995, the Company announced an agreement in
principle to acquire Best S.P.A. and related entities ("Best"). Best is a
manufacturer of Eurostyle kitchen range hoods headquartered in Fabriano,
Italy. Best manufactures range hoods which are distributed to Eastern and
Western Europe, North and South America, the Middle East, Australia, New
Zealand and the Orient. Consummation of this transaction is subject to
numerous conditions and requirements including the negotiation of a
definitive purchase and sale agreement. Accordingly, there can be no
assurance that this acquisition will be consummated.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11.1 Calculation of shares used in determining
earnings per share (filed herewith).
27 Financial Data Schedule (filed herewith).
99 Nortek, Inc. and Subsidiaries Unaudited
Statement of Operations for the twelve months
ended April 1, 1995 (filed herewith)
(b) No reports on Form 8-K were filed by
the Registrant during the period.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTEK, INC.
(Registrant)
/s/ Almon C. Hall
---------------------------------
Almon C. Hall, Vice President and
Controller and Chief Accounting
Officer
May 5, 1995
- -------------------------
(Date)
EXHIBIT 11.1
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Three Months Ended
--------------------------
April 1, April 2,
1995 1994
---- ----
Calculation of the number of shares to be
used in computing primary earnings per share:
Weighted average common and special common
shares issued during the period 16,616,532 16,608,549
Less average common and special common shares
held in the Treasury (4,066,688) (4,066,602)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 12,549,844 12,541,947
Dilutive effect of stock options computed
under the treasury stock method using
the average price during the period 169,763 142,965
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 12,719,607 12,684,912
========== ==========
Calculation of the number of shares to be used
in computing fully diluted earnings per share:
Weighted average number of common and special
common shares outstanding during the period 12,549,844 12,541,947
Dilutive effect of stock options computed
under the treasury stock method using the
greater of the price at the end of the
period or the average price during the
period 169,763 142,965
Dilutive effect of assuming conversion of the
Company's 7.5% Convertible Debentures --- 714,612
---------- ----------
12,719,607 13,399,524
========== ==========
Note: Earnings per share calculations do not include the effect of
convertible debentures (and the reduction in related expense),
because the assumed conversion of debentures is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> APR-01-1995
<CASH> 64,592
<SECURITIES> 27,035
<RECEIVABLES> 109,466
<ALLOWANCES> 4,201
<INVENTORY> 100,058
<CURRENT-ASSETS> 323,256
<PP&E> 187,977
<DEPRECIATION> 89,592
<TOTAL-ASSETS> 512,968
<CURRENT-LIABILITIES> 145,184
<BONDS> 219,927
<COMMON> 16,616
0
0
<OTHER-SE> 105,230
<TOTAL-LIABILITY-AND-EQUITY> 512,968
<SALES> 184,809
<TOTAL-REVENUES> 184,809
<CGS> 135,440
<TOTAL-COSTS> 135,440
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,910
<INCOME-PRETAX> 4,700
<INCOME-TAX> 2,200
<INCOME-CONTINUING> 2,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,500
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
EXHIBIT 99
NORTEK, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
For the Twelve
Months Ended
April 1, 1995
-------------
Net Sales $752,949
-------
Costs and Expenses:
Cost of products sold 536,466
Selling, general and administrative expense 165,707
-------
702,173
-------
Operating earnings 50,776
Interest expense (24,197)
Interest income 5,671
Loss on business sold (1,750)
-------
Earnings before provision for income taxes 30,500
Provision for income taxes 11,500
-------
Earnings before extraordinary loss 19,000
Extraordinary loss from debt retirements (200)
-------
Net Earnings $ 18,800
=======
Net Earnings Per Share:
Earnings Before Extraordinary Loss--
Primary $ 1.49
------
Fully diluted $ 1.48
------
Extraordinary Loss--
Primary $ (.01)
------
Fully diluted $ (.01)
------
Net Earnings--
Primary $ 1.48
======
Fully diluted $ 1.47
======
Weighted Average Number of Shares:
Primary 12,712
======
Fully diluted 12,941
======
It is suggested that this Unaudited Condensed Consolidated
Statement of Operations be read in conjunction with the financial
statements and the notes included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and the
Quarterly Report on Form 10-Q for the first quarter ended April
1, 1995 contained herein.
